nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2019‒08‒19
nine papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. R&D Spillovers in Canadian Industry: Results from a New Micro Database By Myeongwan Kim, John Lester
  2. Pay, Employment, and Dynamics of Young Firms By Tania Babina; Wenting Ma; Christian Moser; Paige Ouimet; Rebecca Zarutskie
  3. The Effect of Fiscal Incentives on Business R&D By Bucci, Valeria
  4. The impact of public R&D support on firms' patenting By Marit Klemetsen; Brita Bye; Arvid Raknerud
  5. Integration in Global Value Chains and Employment in Europe By Filippo Bontadini; Rinaldo Evangelista; Valentina Meliciani; Maria Savona
  6. Modelling the Green Knowledge Production Function with Latent Group Structures for OECD countries By Saptorshee Kanto Chakraborty; Massimiliano Mazzanti
  7. A short review on the economics of artificial intelligence By Yingying Lu; Yixiao Zhou
  8. Vertical Integration and Foreclosure: Evidence from Production Network Data By Johannes Boehm; Jan Sonntag
  9. Does Import Competition Reduce Domestic Innovation? Evidence from the 'China Stock' and Firm-Level Data on Canadian Manufacturing By Myeongwan Kim

  1. By: Myeongwan Kim, John Lester
    Abstract: Business investment in research and development (R&D) makes a key contribution to rising living standards. Firms undertaking the R&D can reduce production costs and introduce new products that provide benefits to consumers that are not fully captured in selling prices. Further, it is very difficult for R&D-performing firms to prevent some of the knowledge created from leaking out or spilling over to other firms. Since firms do not take these positive spillover benefits into consideration when making investment decisions, most governments subsidize business investment in R&D with the expectation that economic performance will improve as a result. Our study confirms the existence of substantial spillover benefits from R&D performed in Canada, so government support for R&D is justified. However, we do not find any empirical evidence to support the current policy of subsidizing R&D at a higher rate when it is performed by small firms than when it is performed by large firms. We also find much lower private rate of return on R&D performed by small firms than by large firms. Subsidies appear to be playing a key role in this result
    JEL: O32 D22 D24
    Date: 2019–08
  2. By: Tania Babina; Wenting Ma; Christian Moser; Paige Ouimet; Rebecca Zarutskie
    Abstract: Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms.
    Keywords: Young-Firm Pay Premium, Selection, Worker and Firm Heterogeneity, Firm Dynamics, Startups
    JEL: J30 J31 D22 E24 M13
    Date: 2019–07
  3. By: Bucci, Valeria
    Abstract: This paper analyses the determinants of business R&D choices. In particular, it provides new empirical evidence on the effectiveness of fiscal policies aimed at driving companies to invest in R&D activity. By computing two very accurate proxies for firm-specific tax savings achievable when investing in R&D, and by exploiting exogenous changes in fiscal legislation in Italy, this study investigates if fiscal considerations affect companies’ choice to invest in R&D and how much to spend in such activity. The empirical analysis is based on an unbalanced panel data set composed of 163 Italian companies, covering the years 2004-2010. A two-step approach has been implemented, by combining a probit and a tobit estimation model. The results deliver strong empirical evidence that fiscal incentives significantly affect business R&D choices, by one side, increasing companies’ likelihood to invest in R&D, and, by the other, fostering companies’ R&D expenditure.
    Keywords: Innovation, R&D, Fiscal Incentives, Marginal Tax Savings
    JEL: H25 H32 O32 O38
    Date: 2019–04–18
  4. By: Marit Klemetsen; Brita Bye (Statistics Norway); Arvid Raknerud (Statistics Norway)
    Abstract: We examine the impact of both R&D tax credits and direct R&D subsidies on Norwegian firms' patenting. Whereas direct subsidies are aimed at projects with low private and high social return, tax credits do not discriminate between projects or technologies. We find that both direct subsidies and tax credits have significant positive effects on patenting. However, the magnitude of the effects depend critically on the firms' pre-treatment characteristics. In particular, the statistically significant estimates are all related to firms with no patent applications prior to obtaining support. Moreover, we estimate that direct subsidies have triggered at least three times as many granted patents per NOK million of support compared to tax credits. Our results suggest that R&D support should be directed to promote innovations at the extensive margin, i.e. to firms with a high potential of becoming innovative rather than to firms with a record of being innovative. Moreover, as targeted subsidies generate more innovations, society would benefit from distributing more of the subsidies to priority areas.
    Keywords: Patenting; R&D policy; Treatment effects; Stratification; Matching; Poisson regression
    JEL: C33 C52 D24 O38
    Date: 2019–07
  5. By: Filippo Bontadini (SPRU, University of Sussex, UK/OFCE, Nice); Rinaldo Evangelista (University of Camerino); Valentina Meliciani (University Luiss Guido Carli, Department of Management); Maria Savona (SPRU, University of Sussex, UK)
    Abstract: This chapter aims at revisiting the empirical evidence on the recent trends of countries’ integration in global value chains in Europe. It investigates two potential sources of unbalances that these processes might relate to: (i) the sectoral specialization of the patterns of international fragmentation, whether high technology manufacturing or knowledge intensive services (KIBS); (ii) the occupational categories that have benefited or been penalized by these trends. A rich empirical mapping of these trends in the European countries is provided, based on OECD ICIO and EU ISCO data. The results on the overall and sectoral-specific trends of integration in GVCs and the associated changes in the shares of managers and manual workers show a dual-speed and qualitatively different integration patterns in Europe, with Eastern European (EE) countries rapidly integrating in high tech manufacturing, and the core of western countries strengthening their mutual integration in the KIBS area. Despite the relatively “good quality” integration of EE countries, the evidence does not seem to reveal a mirroring upgrading of employment structures. While this empirical contribution does not attempt to identify causal relationships, the picture provided in the chapter shows that, overall, integration in GVC seems to reproduce and perhaps exacerbate the initial asymmetries in the sectoral and employment structure, with manual workers occupation reducing overall and knowledge intensive occupations concentrating in western Europe.
    Keywords: Global value chains, offshoring, KIBS, High-tech manufacturing, employment, skills
    JEL: J24
    Date: 2019–08
  6. By: Saptorshee Kanto Chakraborty (University of Ferrara, Italy); Massimiliano Mazzanti (University of Ferrara; SEEDS, Italy)
    Abstract: We explore the green knowledge production function and human capital spillovers in the OECD region using a latent group structure. The number of groups and the group membership are both unknown, we determine these unknowns using a penalized regression technique in the presence of cross-sectional dependence in error terms and nonstationarity. We find substantial heterogenous groups classified under three distinctive groups and their efficient estimates. We try to model the green knowledge production function with Latent-Group Structures using PPC- base method with one unobserved global non-stationary factor, we find heterogeneous behaviour in green technologies using a Cup-Lasso estimate. Human capital and expenditure in Research and Development plays an important part in our findings
    Keywords: Green Innovation, Human Capital Spillover, Gross Research and Development, OECD, C-Lasso
    Date: 2019–08
  7. By: Yingying Lu; Yixiao Zhou
    Abstract: The rapid development of artificial intelligence (AI) is not only a scientific breakthrough but also impacts on human society and economy as well as the development of economics. Research on AI economics is new and growing fast, with a current focus on the productivity and employment effects of AI. This paper reviews recent literature in order to answer three key questions. First, what approaches are being used to represent AI in economic models? Second, will AI technology have a different impact on the economy than previous new technologies? Third, in which aspects will AI have an impact and what is the empirical evidence of these effects of AI? Our review reveals that most empirical studies cannot deny the existence of the Solow Paradox for AI technology, but some studies find that AI would have a different and broader impact than previous technologies such as information technology, although it would follow a similar adoption path. Secondly, the key to incorporating AI into economic models raises fundamental questions including what the human being is and what the role of the human being in economic models is. This also poses the question of whether AI can be an economic agent in such models. Thirdly, studies on the labor market seem to have reached consensus on the stylized fact that AI would increase unemployment within sectors but may create employment gains at the aggregate level. AI also increases the income gap between low- and medium-skilled workers and high-skilled workers. AI’s impacts on international trade and education have been largely neglected in the current literature and are worth further research in the future.
    Keywords: Artificial Intelligence, Development of Economics, Literature Review
    JEL: A12 E1 E24 E65 F41 J21
    Date: 2019–08
  8. By: Johannes Boehm; Jan Sonntag
    Abstract: This paper studies the prevalence of vertical market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers' competitors than when they vertically integrate with an unrelated firm. This relationship holds for both domestic and cross-border mergers, and for domestic and international relationships. It also holds when instrumenting mergers using exogenous downward pressure on the supplier's stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumoured or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place.
    Keywords: mergers and acquisitions, market foreclosure, vertical integration, production networks
    JEL: L14 L42
    Date: 2019–08
  9. By: Myeongwan Kim
    Abstract: A key economic issue in Canada is the declining Business Enterprise Research and Development in manufacturing since the early 2000s. Accompanying this, the total factor productivity (TFP) growth in manufacturing slowed after 2000. However, there has not been a definitive explanation for these trends. To deepen our understanding of this phenomenon, we focus on the increasing Chinese import share in the total domestic absorption in Canadian manufacturing since the early 2000s, which appears to be driven by positive supply shocks within Chinese manufacturing. Based on a firm-level database covering all incorporated firms in Canadian manufacturing, we find that rising Chinese import competition led to declines in R&D expenditure and TFP growth within firms but reallocated employment towards more productive firms and induced less productive firms to exit. The negative within-effects were pronounced for firms that were initially smaller, less profitable, and less productive. These firms also experienced declines in their profit margins due to rising Chinese import competition while larger and better-performing firms did not. Our estimates imply that rising Chinese import competition can explain about 7 per cent of the total decline of $1.36 billion (2007 CAD) in R&D expenditure in Canadian manufacturing between 2005 and 2010. Although it led to declines in TFP within firms, the positive reallocation effects more than offset the negative within-effect. Had there been no increase in Chinese import competition between 2005 and 2010, TFP in Canadian manufacturing would have declined by 1.26 per cent per year instead of the actual 1.09 per cent per year over this period.
    Keywords: China Shock, Canada, Imports, Productivity, Innovation
    JEL: O32 O51 O53 L60
    Date: 2019–08

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